Retail ETFs to Buy on Back-to-School Shopping Spree

The final weeks of the back-to-school are keeping retailers on the edge with initiatives to push up sales. Representing the second-busiest shopping season after Christmas holidays, back-to-college spending is expected to hit an all-time high this year while back-to-school spending is expected to see its second-highest spending level on record.

As per the National Retail Federation (NRF), the combined spending on back to school and college supplies is expected to reach $83.6 billion this year, up 10% from $75.8 billion last year (read: Retail Sales Off to a Great Start to Q3: ETFs to Buy).

Families with children in elementary through high school are expected to spend $687.72 per child on clothing, electronics such as computers or calculators, apparels and other school supplies such as notebooks, folders, pencils, backpacks and lunchboxes, for a total of $29.5 billion, up 8% year over year.

While more than one-fourth of the families are being perceived to shop two months before the beginning of school, 46.7% are expected to shop three weeks to one month before school starts and 21% to wait until the last week or two. This suggests that budget-constrained parents are looking to shop last minute to get extra discounts from retailers, which will come mostly at the end of summer or the Labor Day weekend.

Departmental stores and discount stores are definitely attractive shopping destinations but online sales will remain a hot spot for shopping with 45.5% expected from back-to-school and 44.1% from back-to-college customers. As per eMarketer, online sales for back-to-school will grow 14.8% this year.

What’s Hot?

In the final days of the ongoing shopping season, retailers continued to lure customers with more promotional offers such as cash back, coupon discounts and free shipping.

E-commerce behemoth Amazon AMZN is offering up to 80% off on essentials such as school supplies, kids' apparel, and electronics. Meanwhile, the world's largest retailer, Wal-Mart WMT, introduced a rollback sale in addition to a higher number of back-to-school and back-to-college items through both its Online Grocery Pickup and Pickup Today services, offering tens of thousands more items than in the past. In fact, Wal-Mart is still selling more than 300 items under $1.00 (read: Why You Should Buy the Dip in Amazon Shares with ETFs).

Tech giant Apple AAPL is offering a free pair of $300 Beats Solo3 Wireless headphones with the purchase of a new Mac computer or iPad Pro. Best Buy BBY is not behind, offering a series of student-exclusive deals including $100 off on select MacBook and iMac models, $125 off on select computers and 10% off on select Surface devices.

For school supplies, Target TGT could be an exciting bet as character backpacks with a lunch bag and pencil pouch could be found starting at $14 while school supplies are for less than $1, $3, $5 and $10. On the other hand, Staples SPLS is proposing store-brand paper, notebooks, pens and other school supplies at 50 cents and $1 in stores only. Office Depot ODP is selling pencils, pens, markers, notebooks and more for as little as 1 cent (read: Will Big-Box Retailers Push Up Retail ETFs in Q2 Earnings?).

For school uniforms and clothes, Kohl’s KSS is offering school uniforms at less than $10 and an extra 20% off on juniors' and kids' clothing, shoes and backpacks with a promo code.

How to Play

All these attractive offers will definitely boost sales of all types of retailers, leading to a surge in their stock prices. Investors could easily tap this opportune moment through the following ETFs in a diversified way:

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. It is highly concentrated on the top firm – Amazon (AMZN) – at 19.9% while other firms hold no more than 5.2% share. The ETF has a certain tilt toward specialty retail, which accounts for 26% share while internet & direct marketing (25%), drug stores (11%), hypermarkets (10%), and departmental stores (10%) round off the top five. The product has amassed $72.4 million in its asset base and charges 35 bps in annual fees. RTH has a Zacks ETF Rank of 1 (Strong Buy) with a Medium risk outlook.

SPDR S&P Retail ETF XRT

This product tracks the S&P Retail Select Industry Index, holding 98 securities in its basket with each accounting for less than 2% of assets. Apparel retail takes the top spot at 20.9% share while internet & direct marketing retail, specialty stores, and automotive retail round off the next three spots with a double-digit allocation each. The fund has amassed $314.2 million in its asset base and charges 35 bps in annual fees. The fund has a Zacks ETF Rank of 2 (Buy) with a Medium risk outlook (read: More Pain Ahead for Retail ETFs?)

First Trust Nasdaq Retail ETF FTXD

The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. It is moderately concentrated across components, with each firm holding less than 8.5% of assets. While broadline retailers and specialty retailers make up for a bigger chunk at 25.0% and 22.3%, respectively, food retailers & wholesalers round off the next spot with 14.8% share. FTXD has accumulated $1.9 million within 11 months of its debut and has an expense ratio of 0.60%.

Amplify Online Retail ETF IBUY

This ETF has attracted $89.6 million to its asset base since its debut in April last year. It offers global exposure to companies that derive 70% or more revenues from online and virtual retail by tracking the EQM Online Retail Index. The fund is home to 40 stocks that are widely diversified, with each holding no more than 5.5% of assets. The product charges 65 bps in fees per year.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
VANECK-RETAIL (RTH): ETF Research Reports
 
SPDR-SP RET ETF (XRT): ETF Research Reports
 
FT-NDQ RETAIL (FTXD): ETF Research Reports
 
AMPL-ONLN RETL (IBUY): ETF Research Reports
 
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
 
Wal-Mart Stores, Inc. (WMT) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
Office Depot, Inc. (ODP) : Free Stock Analysis Report
 
Staples, Inc. (SPLS) : Free Stock Analysis Report
 
Kohl's Corporation (KSS) : Free Stock Analysis Report
 
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